Analysis Behind Impulsive EUR AUD Short Position; 2nd January 2013

Analysis Behind Impulsive EUR AUD Short Position; 2nd January 2013

On scanning through the charts last night shortly after futures opened I selected a number of potential Swing Trade candidates worthy of further analysis. My thoughts, as posted on the ADVFN forum were as follows:

AUD:CAD – Potential Swing short
GBP:USD  – Swing Long, but not yet, see Weekly chart
USD:CHF  – Possible falling wedge, confirmation should come quickly
AUD:CHF – At support ready for Swing Long
GBP:CHF –  A speculative Swing long if it finds support as it’s still not hit my upside target set early last Year
CAD:JPY – Maybe a short, but no confirmation yet and my fib levels are a bit hit and miss, but keeping an eye on it.
EUR:AUD – For a short term trade on the short side if we can get an hourly close below current support – which is where price is right now (23:00 1st Jan), doubled up with the hourly 200 MA. If both of these fail to support price, should see more downside.

The funny thing is, with the exception of CAD:JPY if all  those trades were entered last night a significant profit would be showing today in excess of 700 pips.

From that list, EUR:AUD struck me on the smaller time frames as a trade I needed to enter there and then, so I shorted at 1.2722.

Although I posted the entry live on ADVFN and in the comments section of the post below this one, I didn’t have time to carry out a detailed analysis to post on the blog.

The trade was taken based on the 5 and 15 minute charts as a short term trade, but the strength of what I saw on those time frames suggested a break of Hourly support was probable, and sure enough that had been confirmed by the time I woke up this morning.

My initial short term target has already been achieved but in view of a limited potential for further downside it’s worth taking a look at longer time frames to map out the possibilities.

The Hourly support I wanted to see broken was that defined by the line on this chart at 1.2682 noting it also combined with potential 200 MA support. Based on what I’d seen on the 5 and 15 minute time frames I entered the trade inside the upper red circle where resistance was found by the pink 50 MA.

Initial target for the trade was 1.2590 and this was quickly achieved so half of the position was banked in the 2nd red circle for +124 pips. Gap support in the 1.2476 region could provide a target for the 2nd half of the trade dependent on whether price reaches that level and how it reacts when it gets there:

EUR AUD Hourly 2nd Jan 2013

The 4 Hourly chart again shows Moving Average resistance at the trade entry level defined by the upper red circle. On this time frame I think a rebound could occur from anywhere between the 2 horizontal lines shown on the chart as there is a clear history of short term trend reversals within this zone:

EUR AUD 4 hourly 2nd Jan 2013

To find whether this trade has potential in the longer term we need to move out to the larger time frames. It’s difficult to analyse this kind of trade on a long time frame because a trend may be obvious, but there’s the potential for large moves against the trade without having any effect on the overall picture given by the chart.

On the Weekly chart MACD doesn’t help a lot, but the series of lower highs and lower lows confirms that for now the longer term trend remains down.  To simplify the price action I think it would be fair to remain bearish below the lower line, bullish beyond the upper line, and neutral anywhere in between:

EUR AUD Weekly 2nd Jan 2013

Moving out to the Monthly chart, bearing in mind this Months Candle had literally just opened at the time I entered the trade, we can see the blue 20 MA is very likely to offer short term instant resistance on it’s first test, and so far the chart confirms that as having taken place.

However if history is anything to go by the chances are we’ll see price in the current region for another Month or 2 and most likely some kind of rally that would eventually leave a candle wick poking through the 20 MA as indicated in the first red Circle covering the period from mid- 2012. That would suggest it could be too early to enter a swing short on such a long time scale unless you’re particularly patient and willing to pay the finance charges holding a trade for considerable time ahead of the next longer term leg down, if indeed that leg down does eventually materialise. Again, MACD doesn’t really provide anything useful on this time frame:

EUR AUD Monthly 2nd Jan 2013

In conclusion, I entered the trade based on factors shown on the shorter time frames and although longer time frames confirm the overall trend, they don’t provide enough solid evidence to suggest the move down we’ve seen today is likely to continue imminently, and therefore my plan is to trail stops on the remaining half of the open trade using Support and Resistance levels from the Hourly and 4 Hourly charts as a guide to help manage the trade.

I entered the position with stop loss set at 127.85 and will gradually bring this stop loss level down so it remains just above the previous Hourly or 4 Hourly swing high.

  • RS2OOO
    Posted at 21:38h, 03 January

    After a fast move over the last 48 hours and a waterfall straight to my gap support target defined by the lower support line in the top chart, I decided to cover the 2nd half of this short for a profit of +240 points.

    Based on having already closed the first half of the trade for +124 points, this gives an overall aggregate profit of +182 points, and for the first trade of the year, I’m pleased with that.

  • Pingback:This Week's Swing Trading Round Up; 6th January 2013
    Posted at 20:23h, 06 January

    […] looking ripe for swing trades, some of which I detailed in the previous post which can be found here. In particular EUR:AUD looked great for an immediate trade, so I entered almost as soon as markets […]